NAFTA turns 20

April 21, 2014
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by Leo Quigley

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Free Trade can mean different things to different people. To farmers it can mean the freedom to sell their milling grain, feed grain, pulse crops, oilseeds, specialty crops, fruit, vegetables and livestock to buyers in other states or other countries without economic or artificial barriers to stop them.

Or, it can also mean being able to purchase biofuels, diesel, machinery, fertilizer, tools, livestock, pharmaceuticals, computers or new and improved breeds of livestock or plant varieties on the open market without economic or artificial barriers.

It means grain, pulse crops and oilseeds can move freely to markets where there’s a demand and, as food aid, move to families who need it.

In a nutshell, the ability to sell product in an open, competitive marketplace matters, not only to a farming community but to all countries involved in the buying and selling of a given product.

When former Mexican President Carlos Salinas de Gortari, former U.S. President George H.W. Bush and former Canadian Prime Minister Brian Mulroney got together the early 1990s, they talked about trade – not just trade in food, but trade in just about everything including intellectual property and the movement of people between countries – and they were well aware of what free trade could do for the North American continent.

What they came up with – the North American Free Trade Agreement (NAFTA) – wasn’t perfect, but it was a good start.

Since it was introduced and trade barriers slowly stripped away, trade between Canada, the U.S. and Mexico has roughly quadrupled and, according to the U.S. Chamber of Commerce, that additional trade has generated roughly 5 million jobs in the U.S.

Without question, in spite of loud protests by various lobby groups 20 years ago (that are being heard again today), the existing NAFTA agreement has been beneficial for North American trade.

As well as U.S. trade between Canada and Mexico, the U.S.’s two NAFTA partners have also fared well. For example, a study by Jared Carlberg & James Rude1 at the University of Manitoba indicates that agricultural trade has benefited from reduced tariff and non-tariff barriers to trade between Canada and Mexico.

However, the study concluded that trade between Canada and Mexico was somewhat different than trade with the U.S.

“Canada imports a wide variety of fruits and vegetables from Mexico, but its top import is beer, followed by tomatoes, guavas and mangos, peppers, and avocados. Canada’s leading exports to Mexico are canola, wheat, beef cuts, skim milk powder and canary seed.

“It can be cautiously concluded that trade liberalization under NAFTA resulted in an increased two-way flow of goods between Canada and Mexico. Though the speed at which market access is being granted varies by commodity and to some extent by country, it is clear that NAFTA — perhaps on its own but certainly also as a part of Mexico’s trade liberalization strategy — has played an important role in increasing Canada-Mexico trade in agricultural products.”

The study also noted: “Unlike agricultural trade between Canada and the U.S. that increasingly consists of roughly equal two-way flows of similar processed products, trade flows between Canada and Mexico are one-sided and can be explained by conventional arguments of comparative advantage. Mexico exports labor intensive goods such as horticultural products, and Canada exports land intensive products such as grains and oilseeds.”

At a Cargo Logistics Canada Expo and Conference held in Vancouver, Canada, Nov. 29-30, 2013, Luis Brasdefer, Trade & Investment Commissioner for the Mexican government, had little doubt that a revitalized NAFTA agreement will benefit both Canada and Mexico.

In an interview with World Grain, Brasdefer said: “There’s a huge opportunity for Canada to diversify its exports, but not only to Mexico. I think Canada should see Mexico as a gateway for Latin America. That’s a potential market of 580 million people. It’s not about changing markets, it’s about diversifying.

“Today, the Mexican government is spending a huge amount of money on infrastructure. The gate is open for Canadian companies, with all the technology, knowledge and expertise they have, to make logistics more efficient and more competitive. I can think of three or four multiports and seaports that are being developed in Mexico that could be very attractive to Canadian companies.”

Brasdefer also said the advancements that have been made in constructing highways for truck cargo between Canada and Mexico and the routes Canadian railways, particularly Canadian National Railway, have developed between Canada and the Mexican border have created major trade corridors into that country and, from there, into South America.

Laura Dawson of Ottawa-based consulting group, Dawson Strategic, said in a recent statement: “In Canada, the Canadian Council of Chief Executives has taken the lead in rallying businesses in all three countries around the issue of deepened integration. I am convinced that it is time for action.”

While North/South trade has increased dramatically on the North American continent as the tariff reductions contained in NAFTA were rolled out, the consensus in most quarters seems to be that the leaders of all three governments should think about giving trade negotiations a healthy prod, she said.

A revitalized NAFTA

It’s difficult to know what might come out of the next round of NAFTA discussions such as the NAFTA Next Summit to be held at the Palmer House Hotel, Chicago, Illinois, U.S., April 22-25. The changes could amount to little but minor tinkerings or sweeping changes to the way North Americans do business. Or, as some have suggested, NAFTA could be swallowed up into the Trans-Pacific Partnership agreement that is now being negotiated between Pacific Rim countries.

To understand where North America’s leaders stand, perhaps the most informative public discussion so far was a press conference conducted by U.S. President Barack Obama, Mexican President Pena Nieto and Stephen Harper at the Palacio de Gobierno, Toluca, Mexico, on Feb. 15.

President Nieto opened the session saying: “We have analyzed the possibility of setting forward new mechanisms to build and fund strategic projects. We have agreed to work on a proposal that would help us find different mechanisms to fund projects so that we can give a new life to our infrastructure, to have more agile and have safer commercial transactions between our countries.

“We worked on four main topics. The first one is to foster shared and inclusive prosperity. We have agreed to work on a plan to boost competitiveness. We also have agreed to work on a North America transport plan which would give us better infrastructure in our three countries to make the commerce that happens between our three nations thrive.

“We also agreed to standardize and expedite all the procedures that take place in our customhouses. We have also agreed to enable the movement of individuals, and by this have Trusted Travelers Programs.

“In terms of our bi-national agenda with the United States, we have added Canada to work on a program to train professionals by increasing our academic exchanges and ensuring mobility of students between our three countries.”

President Obama noted that Canada and Mexico are two of the U.S.’s largest trading partners with trade that supports millions of American jobs.

“Thanks in part to our efforts to boost U.S. exports, American exports to Canada and Mexico continue to grow faster than our exports to the rest of the world.

“Earlier today, I signed a new executive order to make it easier for companies that want to export and import. Instead of dealing with dozens of different federal agencies and long paper forms, we’re going to create a one-stop shop online, so companies can submit all their information in one place and save themselves time and money.”

In responding to media questions the three leaders said:

Prime Minister Harper: We all agree that there is enormous potential to build on the success of NAFTA in new ways, for example, most notably through the Trans-Pacific Partnership. We’re therefore focused on bringing those negotiations to a successful conclusion.

President Obama: (Regarding the Trans Pacific Agreement) Part of our goal here is to make sure that the Asia Pacific region — which is growing faster than anyplace else in the world and has a larger population than anyplace else in the world — that they have a model of trade that is free and fair and open and allows our businesses to compete and allows our workers to make goods and deliver services that those markets are purchasing. And we can only do that if we raise the bar in terms of what our trade models look like. We’ve got to have stronger agreements that protect our intellectual property, that open up markets to our agricultural products, that make sure that when it comes to government procurement or sovereign wealth funds in these other countries, that they’re not taking advantage of our businesses and preventing us from competing there.

President Peña Nieto: The Mexican stance has been very clear, and specifically the Trans-Pacific Partnership is of the interest of Mexico. Mexico has made a commitment and has shown political will to be part of the Trans-Pacific Partnership. We hope that the deal happens. That is the Mexican stance, and we will work to the best of our ability to reach this goal.

President Peña Nieto: I believe that we have been very candid in terms of the huge strength that we see in North America after 20 years of the free trade agreement (NAFTA). Our trade has been able to thrive. We have more commercial exchanges. We have more investment in the region. And today we have integrated added value chains between our three countries. We have committed to enable trade, to have better infrastructure, to have safer exchanges, and to make our trade be easier. So these are the agreements that we have made today.

President Obama: America’s success, Mexico’s success, Canadian success are all bound together. I’m confident, given the talent of the Mexican people, given the resources of the Mexican people, given the growing capacity of Mexican businesses, and given the fact that we, as a North American entity, constitute a huge trading bloc and economic powerhouse around the world, that we should anticipate Mexico’s growth to continue, standards of living to continue, jobs and opportunities to continue. And that’s what we hope for all our countries.

Prime Minister Harper: Canada has seen great success, but the development of Mexico throughout this time period that is 20 years has been unbelievable, socially, economically and politically. And Mexico is becoming a world power. And we see this accelerating process with the support of President Peña Nieto.

You have made comments on the challenges to meet. I think that the greatest one is the need to keep on increasing the flow of goods and services and information across our borders at a time where risks and threats to security are also increased across the borders. And that will be the greatest challenge to meet.

NAFTA has boosted U.S. corn sales to Mexico

“It’s incredible,” said Julius Schaaf, chairman of the U.S. Grains Council (USGC), commenting on the fact the over the past two decades Mexico has become the second largest market for U.S. corn, the top market for U.S. sorghum and the “premier market” for distillers dried grain with solubles.

“Since NAFTA came into effect, we’ve seen nearly and 200 percent growth in corn sales, sorghum, barley and related co-products including corn gluten and DDGS to Mexico.”

A large part of this growth has come through the expansion of Mexico’s livestock and poultry population through modern technology and improved production practices said Julio Hernandez, U.S. Grains Council director in Mexico. “With the support of the Council’s office in Mexico, importers have become more efficient grain buyers and as livestock practices improved, Mexican consumers benefited from cheaper and better quality meat, milk and eggs which, in turn, stimulated rapid growth of the livestock industry.”

Schaaf, said: “I want to congratulate the vision and persistence of the Council and our member organizations 20 years ago (when NAFTA was signed). We are reaping the benefits of their foresight today.”

Now, among other projects, the Council is exploring opportunities for U.S. malt in Mexico’s rapidly growing micro-brewing industry. The number of craft brewers is on the rise with production at present at 12 to 13 million liters per year – expected to reach 70 million litres by 2017.

However, according to the Council, one of the hurdles faced by small brewers, according to a USGC survey, is the tight control two large commercial breweries have over the malt market. “The Council sees this as an opportunity to educate microbrewers about developing contacts and business relationships to conduct direct purchases of U.S. malt,” he said.

The USGC is a private non-profit corporation with programs in more than 50 countries and nine international offices. The Council tailors its programs to meet individual countries’ cultures and needs and its technical programs teach livestock and poultry producers how to use feed grains effectively and manage their operations efficiently. Its trade servicing efforts educate potential and current customers about the U.S. marketing system, including financing, government programs, U.S. feed grains quality and prices. Its trade policy initiatives identify foreign barriers to U.S. feed grains exports.

Based in Vancouver, British Columbia, Canada, Leo Quigley writes for a variety of national and international publications specializing in agriculture and transportation. He can be reached at Quigley@dccnet.com.